March 02, 2009 01:09 PM ET | James Pethokoukis | Permanent Link | Print

 

I spoke with former GOP presidential candidate Mitt Romney at his hotel room the morning of his speech to the Conservative Political Action Conference here in Washington. (He ended up winning the CPAC presidential straw poll.) Instead of the usual political horse race questions, I wanted to probe his views of our current economic environment and whether he thought Reagan-style free-market economics was dead. A couple of interesting notes: Romney sees the need for government money to help the banks,  and he isn't a knee-jerk "suspend mark to market accounting" guy.  But he also thinks the Obama administration doesn't quite get the fact that America exists in a global economy where it needs to a) compete with other nations, and b) take into account what investors think of our economic policies.

 Here are some long excerpts from our chat:

1) Romney on the the state of the economy:

This is a downward spiral where you have two elements encouraging the other down a steep slope. On one side you have the collapse of the stock market and housing market which means Americans have less net worth and as a result they feel poorer and as a result they buy fewer things and as they buy fewer things, business see greater losses and that in turn depresses the stock market even further and this a self-actuating downward spiral. ... It was my belief that we should have put in place a stimulus plan earlier than the one that was put in place. And I don't think the president's plan is as focused and targeted as it needed to be. But nonetheless I think it has some portions that will help. But this certainly is not over yet and hopes of a quick rebound are quickly fading.

2) Romney on the White House economic forecasts:

I think it's really hard to project when the bottom will be hit and how steep the upturn will be. I am confident that the economy will recover. It always has. The entrepreneurial spirit of the American people is able to pull us out of downward trends. I do believe that the invisible hand of the free market is far more effective than the heavy hand of government. ... Sorry, the only economic system which has been proven to work in the history of mankind is the free market and capitalism and any efforts to move us toward socialism will not be successful in our society. ... But I think it is unrealistic, however, to plan for spending based upon an upside case for the economy. I think it would be a massive error to choose as our objective a budget deficit four years from now of five hundred to six hundred billion dollars in the good times that the president is predicting, a budget deficit of that scale is unacceptable.

3) Romney on whether foreign investors will keep buying our debt:

That is something I don't think the president has spent a lot of time talking to the American people about. The perspective that we can spend massively more than we can take in is premised on the view that foreign investors, largely, will loan us the money to do that. At some point there is the risk that foreign investors will believe that the dollars might not be worth very much in the future. That would cause a run on the dollar potentially, hyperinflation potentially, but certainly an increase in interest rates. And if that occurs, you'd have the peril of very higher interest rates at the same time you have a suffering economy and that would be the sort of stagflation that would be so frightful that it would make current conditions seem mild. The president in his short-term plans and his long-term forecasts has to recognize that laying out to the world a budget of massive deficits as far as the eye can see has the potential of causing a run away from the dollar.

4) Romney on whether free-market economics is obsolete:

There is no question that free markets and free enterprise and holding government taxation at its historical level of roughly 20 percent of GDP has worked to grow our economy and help pull hundreds of millions of people, even billions of people, worldwide out of poverty. ... A departure from that course would be perilous. The reason for a current calamity has nothing to do with holding down taxation . ... Our current calamity was caused by misregulation of Fannie Mae and Freddie Mac and well as a whole host of [things], there are so many people to blame in this regard. And I'm not one of those that ascribes malevolent intent to those people. I just don't think they saw the risk .  ... That being said, this was a necessary correction in the market, but it is not a repudiation of free enterprise and capitalism.

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